Shell, Eni Preempt Possible US Probe over Malabu Deal with Filings

Shell, Eni Preempt Possible US Probe over Malabu Deal with Filings• FG to ban sulphur fuels in July •Refinery overhaul to begin second quarter

Royal Dutch Shell and Eni have voluntarily filed to the United States authorities internal probes into how they acquired Oil Prospecting Lease (OPL) 245 in Nigeria, as the companies seek to fight corruption allegations in Europe and Nigeria.

This is just as the federal government said yesterday it will begin cutting the sulphur levels allowed in imported fuels from July, a year after West African countries promised higher quality fuels by July 2017, as part of a United Nations Environmental Programme (UNEP) campaign that only Ghana has met.

The Nigerian National Petroleum Corporation (NNPC) also announced yesterday that it will start the overhaul of the refineries in the second quarter of 2018, having reached the final stages of talks with consortia including top traders, energy majors and oil services companies on the revamp of its long-neglected oil refineries.

Though Shell and Eni’s filings to the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) do not mean that American authorities are investigating Shell or Eni, the move shows the companies are trying to preempt questions from the United States.

The two oil giants are facing one of the oil industry’s biggest-ever graft trials in Italy, to begin in May in Milan, a pending trial in Nigeria and an investigation in the Netherlands.
The case revolves around the $1.3 billion purchase of the giant OPL 245 from Malabu Oil and Gas Limited, which holds an estimated 9 billion barrels in reserves.

Italian prosecutors allege that bribes were paid in an effort to secure rights to the block in 2011.
A number of top executives from both companies – including Eni’s Chief Executive Claudio Descalzi and former Shell Foundation Chairman, Malcolm Brinded – will face trial.

Under Italian law, a company can be held responsible if it is deemed to have failed to prevent, or attempt to prevent, a crime by an employee that benefited the company.
Both companies’ shares are traded on U.S. stock exchanges, putting their foreign dealings in the scope of U.S. authorities.

Shell and Eni, on behalf of subsidiaries, in 2010 had entered deferred prosecution agreements with the DOJ over separate Nigerian corruption allegations.
Those pacts dismissed charges after a certain period in exchange for fines and an agreement to fulfil a number of requirements. They concluded in 2013 and 2012, respectively.

“A company’s disclosure of alleged foreign corruption to both the SEC and the DOJ in the U.S. typically means the company believed U.S. authorities needed to be made aware of this, and both agencies have the authority to prosecute under the (Foreign Corrupt Practices Act, or FCPA),” said Pablo Quiñones, executive director of the New York University School of Law programme on corporate compliance and enforcement.
Quiñones previously worked as chief of strategy, policy and training at the DOJ’s criminal fraud section, a role that included helping to develop FCPA enforcement policy.

According to Reuters, the U.S. SEC and the DOJ declined to comment on the company disclosures or whether they were looking into any allegations surrounding the block.
Eni noted its disclosure in a SEC filing, in which it said “no evidence of wrongdoing on Eni side were detected”.
Shell has said publicly that it submitted the investigation to U.S. authorities and to Britain’s Serious Fraud Office.

Shell and Eni deny any wrongdoing, insisting that their payments for the block were transparent, legal and went directly into an escrow account controlled by the Nigerian government.
The companies and legal experts said the trial would likely last more than a year, with potential appeals stretching several years beyond that.

The Milan prosecutor charges that roughly $1 billion of the payments were funnelled to Malabu Oil and Gas, which had a disputed claim on the block, and former petroleum minister, Dan Etete, who British and U.S. courts have said controlled Malabu.
Shell has since said it knew some of the money would go to Malabu to settle its claim, though its own due diligence could not confirm who controlled the company.

Eni said it never dealt with Etete or knew he controlled the company, but that the Nigerian government promised to settle all other claims on the block as part of their deal.
“If the evidence ultimately proves that improper payments were made by Malabu or others to then current government officials in exchange for improper conduct relating to the 2011 settlement of the long standing legal disputes, it is Shell’s position that none of those payments were made with its knowledge, authorisation or on its behalf,” Shell said in a statement.

The proceedings have also brought together investigators in several countries, with authorities in Nigeria and the Netherlands sending information to Milan.
A Dutch anti-fraud team in 2016 raided Shell offices as part of the investigation, and a Dutch law firm has asked prosecutors to consider launching a criminal case in the Netherlands.

“I’m not aware of many cases where this many jurisdictions have been at work for so long helping each other out. The amount of cooperation is very unusual,” said Aaron Sayne of the Natural Resource Governance Institute, a non-profit group that advises countries on how to manage oil, gas and mineral resources.

A case by the Economic and Financial Crimes Commission (EFCC) against defendants including the former Nigerian Attorney General of the Federation and Minister of Justice, Mohammed Adoke, Etete, and various senior managers, current and former, from Shell and Eni, will continue in June.
Eni intends to make a final investment decision this year on developing the block and said in corporate filings that the asset has a book value of 1.2 billion euros ($1.5 billion).

The Italian court does not have the ability to rescind rights to the block, and Nigeria’s Minister of State for Petroleum Resourses, Dr. Emmanuel Ibe Kachikwu has said the companies should continue to develop it.
However, the Nigerian government has also described the agreement that facilitated Shell and Eni purchase as “unlawful and void”, in a lawsuit filed by the federal government against JP Morgan in London for the U.S. bank’s role in transferring money from the deal.
A JP Morgan spokeswoman previously said the firm “considers the allegations made in the claim to be unsubstantiated and without merit”.

Additionally, a Nigerian court last year briefly ordered the seizure of the block.
That decision was later overturned, and Shell and Eni said they were not worried about losing the asset. But the ruling and the language in the government’s suit against JPMorgan underscore the risk.
“It’s a nice, stable asset that could produce a lot of oil for a long time,” Sayne said.

Sulphur Fuel Ban

Meanwhile, in other developments in the industry, NNPC’s Chief Operating Officer in charge of Refineries and Petrochemicals, Mr. Anibor O. Kragha has stated that Nigeria will lower the top level of sulphur in diesel to 50 parts per million (ppm), from 3,000 ppm, by July 1, 2018.

In a presentation to the African Refiners Association (ARA) yesterday in Cape Town, South Africa, Kragha said that the Ministries of Environment, Health, Petroleum Resources and Industry and Trade were working together to finalise rules that would be distributed to importers at some point in the second quarter.
Kragha said that while Nigeria was committed to cleaner fuel standards, “significant costs” had complicated efforts to meet the deadline.

In his presentation, he noted that the first shift to cleaner petrol would cost $11.7 million per month, and the second $15.7 million per month. The diesel reduction would cost $2.8 million per month.
Nigeria imports roughly 900,000 tonnes of petrol every month, accounting for 60 per cent of West African imports of the fuel, meaning its choices on fuel quality are likely to impact the entire region.
Petrol sulphur level cuts, a cost that will be borne largely by the government due to capped prices for the fuel, will start in October, moving to 300 ppm from 1,000 ppm.

Kragha said Nigeria was targeting a cut to 150 ppm by October 1, 2019.
UNEP, the ARA and health campaigners, have been pushing West African nations to ban fuels that have been illegal in Europe and the U.S. for years due to what they have said are significant health problems associated with sulphur emissions – particularly in dense urban areas such as Lagos.

Kragha added that refinery overhaul projects will begin in the second quarter, stating that the NNPC was in the final stages of talks with consortia including top traders, energy majors and oil services companies to revamp its long-neglected oil refineries in an effort to reduce its reliance on imported fuel.

“We believe that by the second quarter of this year we will …start getting the ball rolling on the refurbishment and rehabilitation exercise and believe this will run to the end of next year,” he said.
“We are working with consortia right now, negotiating terms, trying to finalise the time sheets so that we can access the money… through the end of 2019 when we believe we will have the minimum 90 per cent capacity utilisation in place,” he added.

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